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tv   Studio 1.0  Bloomberg  September 6, 2015 9:00am-9:31am EDT

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♪ emily: xiaomi may be a new kid on the block, but the chinese start of known as "little rice" is no longer so little. at five years old, xiaomi rivals apple and samsung in the chinese smartphone market and is valued at $45 billion. but worldwide, it is still not a household name. former google executive hugo barra intends to change that. born and raised in brazil, he left a top job as the public face of android to take xiaomi global. joining me today on "studio 1.0," xiaomi vice president of global operations, hugo barra. hugo: hi, how are you? emily: so great to have you
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here. hugo: my pleasure. emily: how is your chinese? hugo: coming along slowly. maybe next time, we can do it. emily: i will hold you to that. that is a big promise. hugo: next time it may be two years from now, three years. it is a hard language. emily: i understand they call you tiger brother. how did you get that name? hugo: our ceo, lei jun, who is a social media rockstar, superstar in china did a simple post on weibo and said hey guys, hugo is joining us from google, we have to give him a name. people went crazy. everybody started suggesting names. i had no say in it. i was communicated on my first day -- by the way, you are tiger brother. emily: the big question is when are you going to start selling phones in the united states? hugo: i would tell you if i knew. but i don't. we don't have a set date yet. selling phones is a big step up. it is a huge marketing undertaking. you know, building a smartphone brand. operationally, it is also very complicated.
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you have to have after sales set up, customer support set up. it takes a huge amount of work, plus, localizing the hardware. we are going to work our way to that, but we're not quite ready yet. emily: are you saying you will someday? hugo: we will, someday, of course. emily: what will it take? hugo: having a team, essentially a sizable team here to manage the process operationally, certification, ongoing engineering help. and so on. emily: months away, years away? hugo: it's no less than a year plus away. emily: more than a year away. hugo: potentially much more than a year away. emily: you spent a long time at google. google is blocked in china, apps are blocked in china. is there a way forward for google in china? hugo: i don't know. i think it is definitely a tricky issue. i do believe that it may not be the end of it. i personally don't think that it is the end of the road for google in china. purely thinking from the point of view of how useful google is and the fact that people in china are universities, study
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abroad, they depend heavily on google even despite the fact that it is blocked. that i just think at the end of the day, someone is going to figure out a way to solve whatever issues exist to bring all of this innovation to the people in china. emily: how satisfied are you with the pace of innovation at android? hugo: i am quite happy with the pace of innovation i think , especially because i understand how hard it is to make progress. when you are supporting hundreds and partners around the world. i think android is entering a new phase by expressing itself through some of the different screen and different types of devices. there is basically an entirely new and completely unexplored galaxy of possibilities here. emily: google does not really make money off of android. it is not doing well when it comes to mobile advertising. companies like xiaomi have built huge businesses off the back of android. do you think that making android open was the right call for google? hugo: i think android as an open
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platform was the only call google could have made on this. it would have been impossible to get the level of adoption that we have seen from a closed operating system. it just wouldn't go anywhere. plus, you would never be able to build such an amazing developer story. android is probably the best decision google ever made, years ago. of course, the fruit of that will be around for many decades. emily: how does google make money off of it? they pay apple billions of dollars to have google on the iphone. hugo: think about what would have happened if android wasn't opened. if, for example, the apps that were loaded on phones running some alternative, closed version of android were mandated by someone. think about what that would mean for google. it means that people would not necessarily make a choice of which browser to use, which search engine to use. when you have a closed operating system that mandates certain behaviors on people it is , unfair. it would be unfair for google and basically anybody else. absolutely one of the best things that ever happened in
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tech in the last few decades. emily: do you think google would close android? build walls around it? hugo: i think google would never do that. there is absolutely nothing that would convince larry to do such a thing. emily: larry handed over a lot of control to send our pichai. what is your relationship with him? hugo: that was an amazing decision. in many ways to create -- because soon. is capable, -- b ecause sundar is capable, the most well-rounded executive at google. he is a great product guy. he is a great business guy. it frees up time for larry to think about what should google be 10 years from now, how do we think about artificial intelligence, how does it affect design for future product? it is hard to do both of those things at the same time. emily: do you still have a relationship with sundar, now that you are at xiaomi, do you guys collaborate? hugo: we do. we are an android partner, first and foremost. we try to be in front of the pack when it comes to upgrading the operating system and using all the innovations coming from google. we spend time together every few months or so when i come and visit.
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emily: would xiaomi build its own operating system? outside of android? hugo: we wouldn't build our own operating system for smartphones or tvs, or these products. simply because it doesn't make sense to do that. we much rather use that engineering horsepower building interesting services and capabilities on top of android that add value versus starting again. everyone who has tried over the last few years has completely failed despite having many more resources than we have as a startup, which we still are. so, we wouldn't. emily: johnny ives referred to xiaomi's phone. he said said you had stolen his design. how do you respond to that? ♪
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emily: you were born and raised in brazil. you got into computers. you made it to m.i.t. you were class president. hugo: you should blame my mom, by the way for all of the above. , she really is the one person
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who sort of pushed me all along, and still does, by the way. emily: you founded your first company after college, a mobile speech recognition company, that got bought by nuance communications. and that now powers apple's siri. hugo: so, there is some amount of code. we don't really know how much from our regional days in our start up that made its way to the software that powers siri today. emily: you joined google in london. you rose up through the ranks. you became the public face of android. what was that ride like? what was it like working for andy reid been? hugo: it was amazing. i worked for a few really amazing executives and mentors. and then of course andy, one of the most brilliant in tech ever, a man who is just so incredibly knowledgeable, and whose intuition about technology, thinking years and years ahead is completely unparalleled. i was lucky to be in the right place at the right time. emily: how did you come across
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this company called xiaomi. hugo: xiaomi was started initially by lei jun and lin bin, the two initial founders in a team of eight cofounders. bin was a colleague of mine at google. and then he left to do something pretty ballsy and new. i tracked all of that very closely. but it wasn't until a couple of years into the company's life came to mountain view to visit at google and brought , their second-generation device. it was when i powered the device on and played with it the first time that it dawned on me those guys were not joking around. emily: tell me your first meeting with lei jun. meeting was at four-hour meeting, which tends to be the case with lei jun, by the way. very deep, involved discussions. he is that kind of guy. it was a dinner in beijing sometime in late 2012. we spent time talking about
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everything, really. from mobile to internet to brazil and cars. i found him to be one of the most fascinating people that i've ever met. you know, at the same level of somebody like andy rubin. his ability to understand consumers, think so many years ahead. four hours flew by like 10 minutes. so it was a pretty amazing expense. andhis was lei jun, bin, me. and this was a translated conversation. emily: he did speak to you in chinese? hugo: in chinese. emily: and bin translated. hugo: and bin translated. it was a surreal but amazing experience. emily: you are a happy google employee, you are the top of android -- how do you decide to take this job? hugo: part of me you always wanted to try something. beyond that was a possibility that xiaomi might be doing something that would have a similar level of impact in the world that android itself did. emily: how did larry take the news? larry, of course, reached
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out and was supportive. but at the same time, trying to see if that was really what i wanted to do. and so on and so forth. but at the end of the day, everyone was supportive. ofmany ways, i was sort leaving to continue what i had been doing on android. because xiaomi, if successful, would become one of the most important partners for the android team. in many ways, it was like i was still in the family. emily: what are the differences between working at a chinese tech company and google? hugo: there is a lot in between the lines in the culture. you have to be sensitive with what you say and who you say it in front of. xiaomi, i think, is a very interesting mix of silicon valley. straight, work as hard as possible culture with more traditional chinese culture. emily: what makes xiaomi different and unique from samsung and apple? hugo: xiaomi is really
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interesting hybrid of things that you would see at apple. an absolute love for design and the culture of perfectionism. this is coming straight from our ceo. emily: is it a phone company? is it an electronic company? is it a software company? hugo: it is none of those. emily: is it an internet of things company? hugo: it is an internet company. that is the best way to describe xiaomi. we interact with our customers and users, or as we prefer to call them, fans through the internet, through social media. we sell our products direct. we are the third largest e-commerce website in china. and the largest pure play, by miles. and we design products, taking a lot of input from the community. probably about 50% of all of the new features, their new services we end up building as part of our software actually came from the community. you can pinpoint it down to one user's idea. this is very unique. emily: you sell phones.
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high quality phones basically at cost. but you make most of the money, right, by selling services, right? hugo: we think of hardware as a platform. we think of our phones as a platform. we think about tv and tv boxes as a platform. on top of that, we have a number of services and apps that we built that we have worked with partners to integrate. which do work as a monetization channel for us. then we have an ecosystem of accessories or gadgets, which are products not only like power banks and headsets, but all sorts of other connective devices. an air purifier. we have an action camera. we have a security camera. emily: just how much money do you generate? hugo: just to give you an idea this year, we estimate we will , have about one billion u.s. dollars in net revenues from services alone. emily: you are invested in 30 or so different startups.
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hardware and software companies. they partner with you. what is the actual relationship there? what sort of cut do you get? what cut to the developers or makers of the product get? hugo: it is a unique model which i have not seen done anywhere else. the way it works is we help these companies get started. in many cases, we will put the founders together and say you guys can work together and build of this. we will get them funded to start with, then we will leave them alone to operate independently. then, we pick the best products that they make. and then we put our brand on those products and sell it through our e-commerce engine. if these guys do a good job, they will enjoy tremendous success. some of them might even go public before we do. there is a startup of wearable products. they ship about one million of these a month. this makes them, a small little chinese company, the most popular fitness wearable devices company in the world. emily: how was the money shared
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between you and these companies? hugo: they manufacture with a contract manufacturer, which we help them connect with. then they pay those guys some amount of money and sell it back to us and make a little bit of margin. it is as simple as that. emily: how much? hugo: it varies tremendously. we actually make good margins through these products, differently through our platform products. they make some margins. we make some margins. it is a good relationship. emily: of all the things you do, phones, this, the services, what is the biggest revenue driver for xiaomi? the biggest revenue driver, of course, are still phones. that probably still drives most profits today without a doubt. the trend over time is for our services strategy, which we have talked about the monetization through services, is to really grow and become the main profit engine for the company. emily: international growth. where is it working, where isn't it working? hugo: first of all we are taking , it slowly. we are paying a lot of attention to how markets react to our strategy, how we need to change things. we eventually made our way to
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india and indonesia, which are two very significant markets. india, in particular. emily: your model is being copied, to a certain extent, in these other countries. can you see where there is a micromax in india, for example? hugo: our model is being copied left and right. both in china and in other markets, including india and others. the way we respond to that is to continue to evolve. the companies that are copying us now are really copying xiaomi from a year ago. emily: how does xiaomi live up to a $45 billion evaluation? ♪
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emily: xiaomi has also been accused of copying. johnny ives referred to xiaomi's phones. he called it best. he said that you have stolen his design. how do you respond to that? hugo: this copycat melodrama all boils down to one edge on one particular phone model, which
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people said looks like the iphone 5. i've been the first to say it does look like the iphone 5. that edge, by the way, is present in so many other devices. it was, in many ways, people projecting their bias against chinese companies on to us. people just could not bring themselves to believe that a chinese company actually could be a world innovator, could build amazingly high-quality products, and, by the way, sell them for less than half the price of a high-end apple or samsung device. i think that drama has quickly started to vanish. i would actually point out to the device that you have -- there is nothing you can point to that even remotely resembled the design. emily: you don't think it looks like the iphone 6 plus? hugo: it is white. [laughter] hugo: how else does it look like the iphone 6 plus? emily: you said it comes down to one feature, but as i understand it, the criticism was more about the look and feel of the product in general. hugo: i don't think that is fair. without a doubt, every smart phone these days kind of looks
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like every other smartphone. right? you have to have curved corners. you have to have at least a home button in some way. right? that's how interaction design works. by just do not think we can allow a company to take ownership of things that just are how they are. i think that if you look at what we have designed in the last 12 months you will understand how , much originality there is in what we do. and to be honest, i think you are going to see a lot more happening in the opposite direction, right? people taking inspiration on what we do. in building emily: lei jun, the new products. ceo, is often compared to steve jobs. he doesn't like that comparison. but he wears a black shirt. he does the one more thing. why does he do that? hugo: he's no longer wearing black shirts. [laughter] in fact, that was a while. he wears a blue button-down shirt. he has 50 of those. he wears them to the office
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every single day. the one more thing was a joke. i think people just took it way too seriously. we don't take ourselves seriously at all. that day when the keynote happened and the slide that said one more thing, the room exploded. emily: on a more serious note, it has been said one of the reasons that you are not rolling out phones in the u.s. yet because of intellectual property issues. how protected are you if you do start selling in the u.s.? are you worried about patent law and potentially getting sued? hugo: of course, we are always worried about patent licensing and intellectual property and so on. every company in this industry has had to deal with that. there is two things we are doing. and which take time. one is systematically taking patent licenses around the world. if it is a patent, if it is an essential patent, of course it needs to be licensed. that is what we are doing. it takes time. we take those and talk to everyone we need to talk to. secondly, we are building our own portfolio of patents. for defensive purposes. because you have to have that.
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think of it as a war chest of sorts. we are filing our own patents. we have filed over 2000 patents, which is actually a lot. we are acquiring patents. that is perhaps one of many factors that determines when we are ready to enter certain markets. emily: you and apple are kind of jockeying for the top spot in china. what is happening in china is the smartphone market is saturated for the very first time. how worried are you about that? hugo: what the data says is that china has moved into the replacement market. meaning people already have a phone. and every year they just want to , buy a new phone. the interesting point is that the replacement cycle is actually coming down. people are more anxious to buy a new phone more often. there is a tremendous amount of room for us, we think, to grow, even if the pie itself isn't growing. emily: would you ever make a car? hugo: would we ever make a car? we are not making a car right now, just to be clear. i think that is an extraordinarily difficult task. it is not something that we can build today. we just are not resourced to do
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something like that, but why not? emily: you guys recently raised $1.1 billion. you are valued at $45 billion. why is xiaomi still a private company? hugo: i do think that moving fast and being able to change direction quickly is important for us. when you are a public company, you are a bit more restrained in your ability to do that. to massively allocate investment into something that may not pan out for some time. so i think just being more flexible and being able to move quickly is the reason why we probably will be private for quite a long time. emily: what does an ipo look like? hugo: our ceos answer to this question is ipo is five years away. he has been giving the same answer for the last couple of years. emily: how does xiaomi live up to a $45 billion valuation? hugo: we are only in eight markets up until now. there are so many new products we are working on. there are so many opportunities and services that people haven't even started thinking about. i think $45 billion is just the beginning. emily: hugo barra, thank you for joining us.
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so great to have you. ♪
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♪ emily: he has been dubbed the "venture cowboy," not just for his signature shirts, but for his brash and freewheeling way of doing business. along with bets on uber and instagram, nine years ago he , also wrote a $25,000 check to buy a piece of twitter. then amassed so many outside shares, he was the biggest outside investor by the time of the ipo. he recently made news by outlining his vision for the future of twitter. even addressing the possibility that twitter cell to a bigger company like google or facebook. i sat down with lowercase capital's billionaire founder chris sacca just days before

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